Adjusting to a New Economic Reality
Andre Mayer appears to be right, but we sure hope he’s wrong.
Mayer, senior vice president for communications and research at Associated Industries of Mass., was talking with BusinessWest about the economy and, more specifically, the recovery and why it really hasn’t materialized (see story, page 6).
And he proffered the opinion that, five years after the recession ended, it might be time to say this just might be as good as the recovery is going to get.
Like we said, we hope he’s wrong about that.
The regional economy has really seen only modest growth since the end of the Great Recession, maybe a percentage point or two each year, and many business owners are still waiting for that surge, boost, spurt, whatever one chooses to call it, that officially signals the end of a downturn and the start of real recovery.
What Mayer is saying, and he’s apparently not alone in this thinking, is that what we’re seeing is real recovery, or at least the new reality when it comes to the economy.
It comes with modest growth in jobs (and even that has arrived mostly in recent months) and only slight gains in gross domestic product. These are just some of the defining elements of something called ‘secular stagnation,’ an economic theory supported by former Treasury Secretary Larry Summers and many others, which contends that a host of factors, from advancing technology to globalization, are keeping this recovery from gaining any real steam in many sections of the country.
Secular stagnation might indeed be real, but our regional economy should be doing better. As Bob Nakosteen, professor of Economics at UMass Amherst, pointed out, conditions for pronounced growth are there, especially an improvement in the financial situation in many households, and businesses as well. Many have reduced debt and righted balance sheets that certainly contributed to the severe downturn at the end of the last decade.
What’s still missing, in many cases, is that all-important commodity known as confidence. A lack of it is still holding a number of business owners back when it comes to expanding their ventures and adding to their workforces. Some sectors are experiencing modest growth, including education and healthcare, the pillars of the local economy, but many are still treading water.
And while the state’s June employment report was encouraging — the jobless rate was at its lowest point since 2008, and another 3,700 jobs were added — there were disturbing declines in the manufacturing and construction sectors, two areas that were supposedly on the upswing.
As area commercial lenders told BusinessWest, business owners read and hear about improving conditions, job gains, and an uptick in business confidence, but don’t necessarily believe what they’re seeing or hearing.
Thus, many are still hunkering down and continuing to do the things that got them through the recession — tightening their belts, creating greater efficiency, and hiring only when they have to.
Mayer believes that some attitudes may be changing when it comes to the economy and the recovery. He believes that some business owners are recognizing that maybe that surge everyone is waiting for simply isn’t going to happen, and that it doesn’t make sense to continue waiting for it. Better still, he believes that some are coming to the conclusion that, by not waiting, they may actually help facilitate that surge.
On this point, we hope he is correct.
If he is, then maybe the current state of the recovery doesn’t have to be the new reality, and this is not as good as it’s going to get.